Interest rates may have gone up, but if you did not fix your mortgage in advance don't despair. There are ways to beat a rate rise and prepare for any future moves. In the latest issue of Your Mortgage magazine, we show you 10 ways to take on a rate rise and win. Here are three of them.
1. Thou shalt research, renegotiate and, if necessary, refinance
Monitor the financial market on a regular basis to stay up to date with current market trends. Examine your current loan product: interest rates compared to those of other lenders, and your ongoing fees and costs. Look at how these can be improved. Flexible, cost-effective loans should have a redraw facility, offset account, and allow additional and multiple repayments options.
If refinancing appears to be a viable option, remember this can only be of advantage if you're saving more money by switching, and should be used as an alternative only if the savings outweigh the costs.
2. Thou shalt be vigilant at all times
Most borrowers are unlikely to be significantly affected but are still in a vulnerable position in terms of mounting interest rates triggered by the recent US sub-prime mortgage meltdown. A growing number of our major banks and non-bank lenders have already succumbed to inevitable rate rises and the future outlook remains unclear.
Michael Lee, consumer advocate and communications, Mates Rates Mortgages, says affected lenders need to decide how much of that extra cost they are willing to absorb and how much will be passed onto customers. "My advice to borrowers is to be alert, but not alarmed. If they receive a notice that their rate is increasing when there hasn't been an increase announced by the Reserve Bank, it might be time to take a fresh look at what the competitor is offering."
3. Thou shalt commit to repaying above and beyond the call of duty
It's a fact: the fastest way to pay off your loan faster is by making extra repayments. Sounds simple? It is. Assuming:
Term 30 years
Interest rate 8.32%
Original repayment $1,512
New repayment $1,562
Beginning from the first year of the loan term, factoring at least an extra $50 aside per month saves you around $50,359 in interest, and will nibble away three years and seven months off the term. Put simply, that's just over $12 per week; the cost of a week's worth of a morning cup of coffee.
Another popular way to pay out your home loan sooner is to pay your regular monthly amount in fortnightly installments instead. The bonus lies in you actually paying an extra month's repayment each year, as there are slightly more than two fortnights in each month, except for February. While your pocket probably won't notice it, your home loan will.
"When you talk to your lender or broker, specify that you want to pay the minimum monthly repayment divided by two, each fortnight, rather than simply asking for fortnightly payments. Most lenders will also allow you to specify the repayment date to fit in with your regular pay cycles to make it even more manageable," recommends Lee.
For the full article, check out the latest issue of Your Mortgage magazine out on sale now.
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